Indicators

Trading forex without a strategy is a bit like starting out on a trip without a map since you never know where your account will end up. You might make money or lose money, but you have no idea which is more likely. The big advantage of having a forex trading strategy is that you can take some of the guesswork out of trading currencies. Read on to find out more about the best forex trading strategies and how to choose among them to trade currencies successfully.

MACD is an extremely popular indicator used in technical analysis. MACD can be used to identify aspects of a security's overall trend. Most notably these aspects are momentum, as well as trend direction and duration. What makes MACD so informative is that it is actually the combination of two different types of indicators. First, MACD employs two Moving Averages of varying lengths (which are lagging indicators) to identify trend direction and duration. Then, MACD takes the difference in values between those two Moving Averages (MACD Line) and an EMA of those Moving Averages (Signal Line) and plots that difference between the two lines as a histogram which oscillates above and below a center Zero Line. The histogram is used as a good indication of a security's momentum.

Bollinger Bands (BB) are a widely popular technical analysis instrument created by John Bollinger in the early 1980’s. Bollinger Bands consist of a band of three lines which are plotted in relation to security prices. The line in the middle is usually a Simple Moving Average (SMA) set to a period of 20 days (The type of trend line and period can be changed by the trader; however a 20 day moving average is by far the most popular). The SMA then serves as a base for the Upper and Lower Bands. The Upper and Lower Bands are used as a way to measure volatility by observing the relationship between the Bands and price. Typically the Upper and Lower Bands are set to two standard deviations away from the SMA (The Middle Line); however the number of standard deviations can also be adjusted by the trader.